Over the past few weeks, consumers have experienced a number of sudden and substantial price movements in several commodity items.
Milk and bread topped the list of 'most noticeable' items adversely affected by the global price food crisis. Indeed, commodity markets, such as those of durum wheat, oils, semolina, coffee and tea, among others, are in disarray in what can be termed as one of the most turbulent periods in the past decade.
The spiraling price of oil, the push towards clean energy sources, like biofuels as a cheaper alternative to oil, the booming economies of India and China making competition for resources steeper, and the effects of global climate change on crops might bear little significance to the shopkeeper who has been keeping himself busy for the past 40 years tending to a handful of loyal customers who purchase their daily needs from his grocer shop.
Lost in the bewilderment of these sudden price changes in items such as cheese, ham, butter and bread, one tries to find a cause to blame. Having just been asked to mark all his grocery items in Maltese lira and euro, he may quickly jump to the conclusion that these price increases are his supplier's way of taking advantage of the currency changeover. Having to face the increasing protests by his regulars, the shopkeeper lets it be known to all that lo and behold, as prophesised, the euro is already leading to an increase in prices.
Consumers and traders are justifiably concerned about recent price movements. For consumers, price increases of this nature decrease their purchasing power, for importers working in a fair-trading environment, pressures from their principals to increase prices is a threat to their competitiveness.
Much is being said about the economic wisdom of the price stability agreements being signed by the Euro Observatory. Some consider it as a case of economic dentistry, others an attempt to dither with free-market economics.
The practical issues of a currency changeover are not the realm of economic debate, however. Such was the case when convergence to the Maastricht Criteria required bold and sound economic management.
With that hurdle surpassed, and a cash changeover looming, arguments need to focus on the management of the psychological impact of the changeover. And price stability agreements are all about that. Their importance lies not in their ability or otherwise to manage the market, but in their capacity to assist consumers and retailers in marching through the currency changeover with ease and confidence.
Cestari, Del Giovane and Rossi-Arnaud (2007) test Italian citizens' recall of pre-euro cinema prices with questionnaires distributed to filmgoers The results show that people have a highly distorted recall as prices quoted referred as far back as 1990, more than a decade before the euro was introduced in Italy.
Research on post-euro introduction adjustments clearly show that inflation perceptions are driven by socio-demographic factors and economic conditions: they are higher for women, the less educated and unemployed, and consumers with some form of "financial distress".
When consumers express opinions on what they report as "inflation", they actually incorporate a complex combination of forces that go well beyond the phenomena measured by inflation statistics.
Opinions about the wisdom of price stability agreements within the context of a practical currency changeover need, therefore, to move away from economics into the uncharted land of social psychology.
Should the economic argument be made, however, it might be useful to note that no commitments were made on the prices of products experiencing severe price pressures, since there was never a intention to fiddle with market economics. What has been committed is being done to facilitate the psychological transition for the establishment of a new set of reference values in euro.
Consumers should expect to manage a currency changeover and that is why having a new currency at the same price will be a critical success factor in the coming weeks.
Mr Camilleri is executive director of the National Euro Changeover Committee